Avoid estate-planning traps as clients age

As more of your clients reach retirement age, your job may get harder. Older clients will need help crafting and revisiting their estate plans, and many will face health and mental capacity issues.

And, as the overall Canadian population ages and as more wealth is transferred, we’ll likely see more estate disputes and capacity assessments, according to an expert panel that spoke at the Ontario Bar Assocation’s OBA Institute event this week.

The experts predict advisors, lawyers and banks will need to work together to ensure estate-planning issues are tackled effectively. And, one thing financial professionals will have to regularly review older clients’ KYC documents and portfolios, the panel suggests. This should be done if someone is deemed incapable, or if there are changes to a client’s trust documents and PoA.

Another trend brokers and advisors may encounter is more older clients relinquishing their decision-making powers to children, says Fish, especially if these parents have business-savvy kids and are tired of managing money.

But, he warns, you should be wary if children ask for their parents’ accounts to be made joint or if they request for accounts to be cashed out. These types of requests are red flags for banks, say Moore and Shody.

In a separate OBA session on replacing and retiring trustees and executors, Anthony McGlynn offered tips on dealing with clients’ wills and trusts. McGlynn, partner at Perley-Robertson, Hill & McDougall LLP, says, “The statutory mechanisms on replacing trustees and executors are cumbersome. So [have clients] offer as much direction in wills and trust documents as possible.”

For more estate-planning tips and for more on incapacity, see our live tweets below. And, follow @advisorca for more news and event coverage.

Live tweets from Ontario Bar Association Institute

We’ll soon be reporting from #OBAInstitute. First, Anthony McGlynn will offer tips on retiring & replacing trustees & executors. The statutory mechanisms on replacing trustees & executors are cumbersome. So offer as much direction in wills, trust documents as possible, he says.

Also, make sure clients know there’s a big difference between trustees and exectors. For example, executors collect and distribute assets over limited period of time, while trustees mainly have to account and remain responsible to the beneficiaries of trusts and their needs. Read: Implications of new probate rules in Ontario

On retirement, trustees don’t have the authority to name replacements, says McGlynn. Indenture are used for instruction on next steps. But, if a trust has two trustees and one retires, then the retiring trustee must understand what rules apply in terms of his liability for actions he made as trustee.

When there’s only one trustee and she wants to retire, the court gets involved. The trustee must provide her reasons and know that the best interests of trust matters: McGlynn. Read: What happens when both heir and testator die?

For replacing a trustee, he adds, the following situations apply, among others: she dies, she refuses to act, she’s incapable or she’s bankrupt.

Capacity and dealing with financial institutions

If you deal with clients and help to prepare PoAs, inform them that appointed individuals may have problems getting PoAs accepted at banks, says Fish #OBAInstitute

That’s not a shot at banks, says Fish; we’re all struggling to find ways to meet the needs of an aging population #OBAInstitute

Lawyers, advisors and banks often have to work together to reslove estate issues. All firms have different internal structures in accepting PoAs #OBAInstitute

If a client’s appointed attourney has trouble getting a PoA accepted at financial institutions, she can escalate her request to that institution’s legal representatives #OBAInstitute

In accepting PoAs, the main obligation of advisors, banks and other institutions is to protect their client from financial abuse: Fish

As an advisor, always get information on whoever is named as your client’s PoA. When a client’s incapacitated, you’ll need this, says Fish. Also, if someone is deemed incapable, treat that as a material event where you re-assess that client’s portfolio, KYC and suitability.

Overall, it’s key to not get caught in family disputes related to incapacity: Fish. Can be an issue if PoAs aren’t updated or family fights occur.

Moore, of CIBC, says as people age, we’ll see more PoA disputes and cases of incapacity. Also, could see more unusual transactions and requests.

Shody, of BMO, says banks aren’t out to have estate, PoA disputes with people. They ask advisors to come to banks politely & explain issues.

Moore notes banks appreciate people coming to the bank with legal PoA when clients need help, lose capacity. Can help protect all parties.

These days, children with PoAs (kids of clients, for ex) often ask to make parents’ accounts joint. But there are rules to consider. But, say Moore and Shody, banks don’t like to “change beneficial ownership” of financial accounts, unless client requests in certain way. Too many risks of doing this.

In fact, the panel agrees that making accounts joint for the purpose of PoA appointments should be considered as gifting scenarios. The rules are clear with this scenario.

Q: Many legal documents are in tiny print and are complex. Are there easier-to-understand, large-print documents? Moore says brochures exist, but that more banks should consider offering legal documents in larger print for seniors.

And, Shody adds bank staff are trained on how to explain estate planning and, in particular, the cons of decisions such as making accounts joint with kids.